The Zaslav Paradox: Reversing WBD Merger May Salvage His Legacy

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When you're a very young person, one of the assumptions you tote around as a brave stay against the world's gibbering incomprehensibility is that the grown-ups all know what they're doing. The adults, you reckon, have it all figured out. Turns out: They don't. Practically nobody does.

If there's some small measure of solace to be found in the realization that pretty much everyone is in the same slowly capsizing vessel -- the S.S. Beats Me is nautical miles out to sea and taking on water at a worrisome clip -- the near-universality of our predicament doesn't make it any more fun to find yourself going down with the ship. Drunk on his own self-regard, the captain has jettisoned all but one lifeboat, and there's only enough room onboard for himself and the contents of the combination safe he keeps stowed in his quarters.

For the sake of establishing verisimilitude, let's say there's $52 million inside the safe. Knowing this, knowing that the briny deep awaits and that nobody's coming to your rescue -- along with the loot, the captain's made off with the ship's radio -- would anyone blame you for being a little put-upon? As the hull starts to groan and the skipper steals away, would it be bad form to shake a valedictory fist at the stars in the sky and indulge in one final gripe about the pointlessness of it all?

If you're one of the thousands of former Warner Bros. Discovery employees who've borne the human cost of a $43 billion merger of non-complementary media assets -- a mash-up that's now about to be undone, and just three years after AT&T staggered away from its own unhappy dalliance with Hollywood -- you may wonder what the point of all this frenzied accumulation was meant to be. How does anyone justify going $55 billion deep into the debt hole to fund an arranged marriage between Dr. Pimple Popper and The Sopranos, or Here Comes Honey Boo Boo and Casablanca, or 1000-lb Best Friends and the National Basketball Association? After two earlier Warners-centric catastrophes (see: AOL Time Warner, ca. 2001-09, and the aforementioned AT&T debacle), how could anyone think that the third time would prove to be the charm?

"We are confident that we can bring more choice to consumers around the globe while fostering creativity and creating value for shareholders," WBD CEO David Zaslav said when the deal closed on April 8, 2022. Since then, the value of the company's shares has dropped nearly 60%, while Zaslav's compensation soared. Shortly after S&P Global downgraded the company's credit rating to junk status (a move since echoed by Fitch), shareholders symbolically "rejected" Zaslav's $51.9 million compensation package. (He gets to keep it regardless of the vote.) In 2022, Zaslav banked $39.3 million.

WBD is hardly unique in fumbling the bag, as nearly every major media company has faltered during the dress rehearsal for the streaming revolution. Comcast's Peacock unit has burned through $8.99 billion since the first quarter of 2021, and yet the platform last month commanded just 1.4% of all U.S. video consumption, per Nielsen. (By comparison, YouTube led all comers in the streaming space with 12.4% consumption, while cable TV as a whole boasted a 24.5% share.)

And even before media giants started setting great big bundles of cash alight on streaming, there were plenty of missteps in the linear space. In 2019, Disney paid $71.3 billion for Fox's cable and studio assets and assumed almost $14 billion in Fox's debt, a transaction that likely won't be mentioned during the highlight reel that'll play at the top of Bob Iger's retirement party.

Under the post-breakup scheme, WBD chief financial officer Gunnar Wiedenfels will assume oversight of the new "Global Networks" entity, which will include TNT Sports and all the cable network assets. Wiedenfels, who since the merger has managed to pay off some $21 billion in debt, will inherit much of the remaining $34.6 billion in liabilities once the split from the studios/streaming business is consummated.

Zaslav has indicated that WBD's live sports programming will continue to stream on HBO Max in the near term, but that arrangement is subject to change. "Inside the U.S., sports has been less critical; it's viewed, but it hasn't been a real driver for us," Zaslav said on a Monday morning call with analysts. "And so, it will continue to be on HBO Max, but the Global Networks business will evaluate over time where the best place for that is."

Naturally, if Zaslav decides he'd like to keep sports streaming on HBO Max, he'll have to negotiate with Wiedenfels for those rights -- although such a dynamic is still purely in the realm of the hypothetical. For now, there is much that we do not know about how the studios/streaming body will address sports, although recent actions suggest that Zaslav may decide that his team can do without.

Still, the same exec who undervalued TNT's NBA rights and then sued the league for choosing Amazon as WBD's successor is still very much a huge sports enthusiast -- at least, on a personal level. Zaslav recently has been spied taking in the action at venues as far flung as Roland-Garros and Madison Square Garden, and last summer he got in some valuable hang time with Tom Cruise at the Olympics.

Additional intel about the sports portfolio is expected to be provided to investors within the coming months. In the meantime, it's likely that Zaslav will continue to look at sports rights outside the U.S. market, where WBD's holdings include the network Eurosport, which together with its sibling channel, Eurosport 2, reaches 245 million consumers across three continents.

As much as it appears that Wiedenfels has had the short end of the stick thrusted at him -- as of the end of the first quarter, penetration of the legacy pay-TV bundle has dropped to 36% of all U.S. TV households, with 45.5 million homes now subscribing to a cable/satellite/telco-TV package -- the networks unit still generates an enviable amount of revenue. The WBD networks booked $20.2 billion in revenue in 2024, down 5% versus the year-ago $21.2 billion, or nearly double what the direct-to-consumer unit ($10.3 billion) and studios ($11.6 billion) generated during the same 12-month span. Trouble is, the cable channels also lost a great deal of money last year, posting an operating loss of $5.76 billion -- and as cord-cutting accelerates, those losses are only going to deepen.

If WBD's streaming properties have broken through to profitability, with EBITDA coming in at a tidy $677 million last year, those incremental gains are still far outweighed by the overall costs of the failed merger. Rival network bosses have carped that Zaslav only got into the Warners business because he wanted to cosplay the role of a studio mogul, and while he certainly has hammed it up to the hilt -- witness the Vanity Fair profile and the holding court at the Polo Lounge and his much-ballyhooed renovation of Robert Evans' old digs in Beverly Hills -- but the decision to undo the merger demonstrates that at least some of the playacting is finally being overwritten by sound business decisions.

If Zaslav's motives may have been colored by his relentless ambition to slough off the low-rent sensibilities of basic cable in favor of the glamorous trappings of Hollywood, he got his wish, although the price to the people who once worked for him and the investors who bought into his vision was far too dear.